I wrote this after trying to explain Bitcoin to my mom. Brackets indicate a link to be added later. Suggestions welcome.

EDIT: I, the original author of the following document, hereby declare it free from all copyright, so that it may be modified and redistributed openly by anyone for any purpose.

Quote

What is Bitcoin?

Bitcoin is a free (as in speech and as in beer) program that allows you to securely and anonymously send money over the Internet – without paying any fees.

Why would anyone make something that useful and give it away for free?

Bitcoin's creator original Satoshi Nakamoto believed in the principals of [Free Software]. He felt the need for something to exist, so he made it. Now he shares both the software and it's underlying code with everyone, so that others may learn from and improve upon his work.

How do I use Bitcoin?

First off, download the program from the [project website]. Once you have it installed, you can get your first 0.05 BTC for free from [Bitcoin Tap], and then purchase more at [an exchange]. Now open the program, click send, and enter an address and amount. You will receive Bitcoins automatically when they are sent to you, even if your computer is off.

How does Bitcoin Work?

Think of a single Bitcoin as a large sheet of paper watermarked with a serial number. To send a Bitcoin to someone, you write their name on the paper, sign it like a check, and then post a copy in a public location. They can then resend it to someone else, and so on.

Wait, I thought you said “anonymously”!

Although every transaction is publicly visible, it is in most cases impossible to trace a Bitcoin address back to an individual. Also, you may create a new address for yourself at any time.

Does this mean Bitcoins aren't divisible?

Not at all! The actual process if far more complicated than that (and automated). Rest assured that your Bitcoin transfers are accurate to 8 decimal places.

What stops the same coin from being sent to two people?

Because every Bitcoin user keeps a log of every transaction, this would be noticed immediately, and only one person would actually get the money. To be safe, don't assume you have actually received a payment until it is marked with at least 1 confirmation.

What is Bitcoin Mining?

The Bitcoin network has no centralized infrastructure, but rather depends on the contributions of individual users to function. You can contribute to the network be checking generate Bitcoins and [forwarding a port], and you will be [paid modestly] for doing so.

Where are my Bitcoins stored?

On the your hard drive. Make sure to backup frequently! Alternatively, you can place them in a [wallet service] for safe keeping and easy access from other computers.

Hey, I though you said “without paying any fees”!

Transaction fees are entirely optional and often unnecessary. You can, however, specify a fee to pay from the option menu, which usually results in your transactions clearing faster.

Why are addresses so long?

Addresses are randomly generated so as to preserve anonymity, and lengthy to ensure security. Use the address book feature to keep track of them.

How long does it take so long for transactions to clear?

A transaction will register almost instantly, but to prevent double-dealing and other deception, it must be verified at least once before being considered complete, and six times before being considered confirmed. One verification takes approximately 10 minutes. Far better than the 3-5 days for a check, huh?

Bitcoin is not free (gratis, as in beer), transaction fees are an integral part of the system and they will only get more important as the generation subsidy gets halved over time. Perhaps a more important distinction is that there is no central collector of the fees. The best explanation I've heard is that across the entire Bitcoin network, there is a lottery held, where roughly every 10 minutes, one person gets to be the central banker and print 50 Bitcoin for their work toward creating a new block. Though now that I say this, I don't think this is a good explanation.

Every 10 minutes or so, one person wins the lottery and finds a new block, which they fill with as many transactions as possible in order to collect the most fees. While the Bitcoin network is still small and these fees are not a great incentive to perform all of that hard work, they are additionally given 50 newly created Bitcoin. As the network grows and more transaction fees are available, this additional incentive is no longer as necessary, and is halved every four years or so. Eventually, the additional incentive is next to nothing, and the only reason miners exist is to collect transaction fees.

I think it also might be an important distinction that Bitcoins are not actually stored on any one hard drive. The only thing that must be protected against corruption and theft is the key that unlocks the Bitcoin, which are really "stored" in the block chain, across the entire network.

I think the fees system is still something of an open question at this point. It's not clear what the eventual cost of mining will be and to what extent miners will rely on/be motivated by fees, and how much a per tx fee might cost (if anything).

It'd be fair to say that today, there are no fees, but very small fees might appear in future.

I think the fees system is still something of an open question at this point. It's not clear what the eventual cost of mining will be and to what extent miners will rely on/be motivated by fees, and how much a per tx fee might cost (if anything).

It'd be fair to say that today, there are no fees, but very small fees might appear in future.

Eventually there is no per block reward so there will be fees unless Bitcoin disappears. I think fees will be common inside of a year, just a guess.

It'd be fair to say that today, there are no fees, but very small fees might appear in future.

This is incorrect. Fees are small and optional but widely used currently. In the future, assuming an increase in the usage of Bitcoin, they will (most likely) be larger and mandatory if you want to have your transaction confirmed in a reasonable amount of time.

That depends on many things that are unknowable, like the rate of deflation, what the market feels an appropriate level of hashing protection is and the level of traffic. If you process 2000 transactions per second even very tiny fees can add up quickly. If your typical fee is a 0.01 cents per transaction that's close enough to zero to be ignorable and feel almost entirely free.

You have very interesting conversations with your mother. I think if I tried it with my mom the second question would be already different. It would be like "And are you sure you're not hungry?"

Lately when I was trying to explain as quickly as possible to somebody not really technical (kind of a person that uses computer mainly for ms office), I simplified that it's kind of currency, where instead of coins, you have files. And you exchange these files. It obviously raises tons of questions for a technical mind, but for the one I was talking with, it was more like "ah, I see".

When I really want to tell somebody something more about it (usually somebody more technical), I often run into problem of trying to convince him it's secure, without describing all protocol details.